Banks positive on household loans

PETALING JAYA: Household loans, notably for residential properties, are expected to drive loans growth for many banks this year, industry players say.

Although it had slowed, growth prospects for residential loans continued to look favourable on an expected recovery in the country’ economy by the year-end and a steady demand for homes, they said.

Hong Leong Bank was projecting a growth of 5% to 8% for loans to the residential sector over the next 12 months, said chief operating officer for personal financial services Moey Tan.

“While the growth will remain positive, the projected rate of 5% to 8% has softened compared with April 2009 growth rate of 10% for residential loans.

“We remain optimistic that there will be positive growth as the general consensus among the public is that residential properties will remain a good investment during these uncertain inflationary times.


“Also, demand for owner-occupied landed properties will remain resilient due to the steady population growth,’’ she told StarBizWeek in an e-mail reply.

Furthermore, she noted that prices of landed residential properties had continued to remain stable even in the current economic environment.

“Residential loans currently contribute 41% of the bank’s total loan base and would continue to be a key driver of growth and profit for Hong Leong Bank,’’ Tan said.

Residential property loans made up 27% of the total loans in the industry, she said, adding that Hong Leong Bank expected household loans to be a significant driver of growth in the next 24 months.

Alliance Bank Malaysia Bhd had seen a growth of 3.3% in household sector loans for the quarter ended March 31 compared with the previous quarter, driven mainly by mortgage and unsecured loans, according to group CEO Datuk Bridget Lai.

Alliance Bank has also seen increasing interest from customers in refinancing their properties to reduce borrowing costs due to lower interest rates.

“The bank expects loans growth for the household sector to increase marginally this year compared with last year, as we begin to see stability trickling back into the economy following expectations that the country is heading towards a recovery come the end of 2009,’’ Lai said.

According to Lai, household sector loans (mortgage, hire-purchase, credit card and personal loans) as at March made up 60% of Alliance’s total loans portfolio.

Based on Bank Negara’s latest statistics, loans disbursed to household in May grew annually by 10% to RM17.3bil compared with RM16.9bil in April.

OSK Research attributed the growth of household loans mainly to the purchase of residential properties, apart from hire-purchase and credit-card loans.

On an annual basis, outstanding household loans expanded by 8.4% at end-May against 8.5% the preceding month.

Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias sees slower growth in household loans this year due to the weak economy and given that the country’s external sector has yet to fully show a firm turnaround.

“Against such a backdrop, there are fewer qualified borrowers because labour market conditions and income prospects are still deteriorating.

“This will make financial institutions more cautious in their lending practices as some banks are already seeing higher non-performing loans ratio,’’ Zahidi said.

RHB Bank sees 5% to 7% growth in its consumer home loan portfolio, which is at parity with last year’s level and above the industry growth targets, according to head of retail banking Renzo Viegas.

RHB was aggressively targeting the refinancing sector as well as customising end-financing packages with developers, he said.

Viegas also said the bank had adopted risk-based pricing whereby it offered better rates for loans with lower loan-to-value (LTV) ratios and customers who opted for mortgage reducing term assurance (MRTA) for their loans.

The LTV is the size of a loan against the value of the property while MRTA guarantees the repayment of a mortgage loan in the event of the borrower’s death or total and permanent disability.

OCBC Bank (M) Bhd head of secured lending Thoo Mee Ling said home loans would be one of the main growth drivers for the bank.

Thoo said OCBC had been outperforming the industry in terms of total home loans approved as it had experienced growth of more than 100% from January to April.

By The Star (by Daljit Dhesi)